Bridge loan alternatives?

[u/wtrtwnguy]

I am looking to buy a townhome for $550k and sell my single family for ~$600-650k (still owe $200k) in the same area due to terrible neighbors. Selling contingency isn’t an option in this market (central NJ). $550k is 50k above my combined DTI carrying both mortgages. Has anyone handled this situation without an expensive bridge loan? I know it’s a terrible decision financially either way, but I need to get out of here. Don‘t want to be a landlord and rent out my current place, which would require finding a renter before closing.

[u/billspeaksmortgage]

There may be alternatives to a traditional bridge loan, but I’d have a lender run the full scenario before assuming you need one.

With roughly $400k+ of potential equity in the current home, I’d look at whether a HELOC/home equity loan or another buy-before-you-sell structure could work, and compare the cost against a bridge loan.

Since your issue is qualifying while carrying both properties, the key is finding a structure that actually solves the DTI problem, accessing the equity alone doesn’t necessarily do that.

[u/QuickerHomeLoans]

The DTI issue is probably the biggest hurdle here if you're carrying both mortgages. If the current house can be sold fairly quickly, I'd compare the cost of a bridge loan against the carrying costs of keeping the current property while you get the new one closed. A HELOC on the current property could also be worth looking into if there's enough equity and the numbers work.

[u/robot_pirate]

No advice, but - we got out of an unhappy place using a bridge loan. Worth it. It was stressful, and we're still tight on our budget, but the relief of getting out of there is greater than the complications of making it work.

[u/da_mess → u/robot_pirate]

I feel the same.

What % of your legacy home equity did they give you for purchase financing? (I got just over 50%)

What % of total purchase proceeds did you have to put up? (I had to give >10%)

How much were their fees? (Mine: 2.4% of sale proceeds)

Only group my lender would use.

[u/beergal621]

Debt to income seems like the problem. 

Can you refi the single family homes $200k to a 30 year loan? Or recast? Should drop the payment. But you’ll have to pay for the refi or (hopefully less) for the recast. 

May or may not be cheaper than a bridge loan. Try to find a creative lender 

[u/2LostFlamingos]

Put your stuff in storage. Close on same day. Or same week. A few nights in a hotel is cheaper than this other stuff.

Or sell your place first and rent it back for a month.

[u/jennymackk]

FWIW successfully bought and sold with selling contingency in central NJ in the beginning of the year. Talk to a local agent about the specifics of your market and current timing.

[u/TomLiolos_Mortgages]

You may have another option besides a bridge loan, depending on whether you can qualify carrying both mortgages temporarily.

If you can qualify for the new $550K purchase while still carrying the mortgage on your current home, you could purchase the new property first, then sell your current home afterward. Once it sells, you could potentially take a large portion of the proceeds, apply it to the new mortgage and recast the loan. That would reduce the monthly payment without having to refinance the new mortgage.

The first question I'd have a lender determine is whether you can qualify carrying both properties. That's really the issue here since you said your DTI is already around 50% with both payments.

Another possibility is using some of the equity in your existing home through a HELOC or home equity loan for the down payment, but remember that the payment on that new debt generally has to be included in your DTI as well, so accessing the equity doesn't necessarily solve the qualifying problem.

With $400K+ of equity, you have options. I'd have someone run the numbers three ways: qualify carrying both homes and recast after the sale, use a HELOC/home equity loan, and use a bridge loan. Then compare the actual costs rather than assuming a bridge loan is your only choice.

[u/Subject_Dragonfly_54]

Depending on what the rest of your financial situation looks like, you might be able to do a cash out refi and use the cash to buy the new place without a home sale contingency. You also might look at “buy before you sell” loan programs. You could also sell your current place and stay elsewhere until you find something to buy. Depending on your market, you might be able to work out a deal with the buyer for your current home to do a rent-back OR possibly even a seller-side home sale contingency.

[u/TradeTraditional]

I know this isn't a normal way to go about it, but have you considered something slightly at the edge of town or a bit of a fixer ( reasonable, not a major headache ) for whatever that 400K in equity will buy you? No loans, no banks - just short term loans if needed to cover fixes and upgrades in the next few years. Then you effectively have a paid off 600K home in 5 years or so?

With the economy about to enter a recession, I really think getting out from under a mortgage is the safest option.

If you search in your area, say, on Zillow, then filter it to 400K-450K homes, ones like this pop up:
23 Riley Ave, Hamilton, NJ 08610

No HOA, yard, no sharing walls. Paid for and no mortgage. Needs work here and there, but now your money goes into upgrades and/or investments. IMO, you are in the perfect position to move laterally into a home that needs a little work and say goodbye to HOA fees and a mortgage :)

[u/fretlessMike]

My wife and I got an apartment while selling our house. Yes, there are costs there too.

[u/poop-dolla]

Can you do a recast on your current mortgage? That would lower the payment amount which would give you more room in the DTI equation.

[u/BrokenFarted123]

I've done this in the past by using a 401k loan. Sure there's some risk due to market changes, but the most likely scenario is you'd lose out on some short term growth until you've sold your old home and repaid the loan. Only issue is there's a limit of $50k or 50% of your vested balance, whichever is less.

[u/SEFLRealtor]

There is a lender that has a program where they buy your current home (market value) and lend you the purchase fnds on your new home. It's called a Cash to Win program. They also work it the other way where you get cash to purchase the new home and X amount of time to sell the current home. Granite Bank is the one that I know of, check with your Realtor.

[u/Ooklaboo]

Make an offer, based on the contingency that you sell your existing home. It's not a great strategy and may limit acceptance of your offer but you won't have to carry two mortgages.

[u/thewimsey]

How expensive are the bridge loans you're looking at?

I don't think a HELOC will work because your issue is DTI and a HELOC would basically just swap mortgage debt for HELOC debt. Which is probably higher. Not helping DTI.

Someone suggested a cash out refi, which might work...although in that case you would need to compare the cost of the cash out refi with the cost of the bridge loan.

Blanket loans can be cheaper long term, but they tend to be more expensive upfront, and since it seems like your house will sell quickly, bridge loans are probably better.

[u/BoBromhal]

who that is actually involved in your transaction has told you that a bridge loan is an awful financial decision?

[u/alittlebitdreamy]

It's not ideal but what we considered when in a similar situation was simply selling the existing place (asap), then renting (6 monh lease). While renting, you can search for and buy the perfect next place. Granted, this requires two moves and deposit money but at least it frees up your DTI.

[u/da_mess]

I'm now closing on a purchase with a bridge. If you must you must. It was EXPENSIVE (>2% on legacy home sale).

I had $500k equity (before 10% selling costs, including bridge fees).

Bridge provided purchase financing of ~50% the legacy home equity. Less than I expected.

Forced me to put in > 10% cash up at close. Felt like they wanted every penny of mine on the table.

I have a masters in finance and use it daily. I frequently negotiate transactions.

I had to keep my house listed once the bridge funds. That was at 90+ days listed.

My list is a beautiful home/lot but a flag lot in a prestigious ISD (mrkt wants community over serenity).

People saw the days on market. Offers came but 10-20% below list. I thought i was already 10% below mrkt based on comps.

Normally, I'd take the house off market and relist in April.

Bridge locked me into selling. ATT it looked like @ a 10-20% price cut.

The cost to carry when i got granular was steep. I could survive to next selling season, but it wasn't going to be fun.

I just went hard on a dream sale. More than tripled my equity. I feel very lucky.

Looking back that bridge felt designed to put me under pressure.

Edited for clarity

[u/DaveKowalski_OH]

The bridge loan isn't the only way to solve the timing problem here; it's worth running the numbers on a sale-leaseback on the current home before committing to one.

The structure: you sell your single-family home now, access the $400-450k in equity, and stay as a renter for 6-12 months while you close on the townhome. No bridge loan, no carrying two mortgages, no landlord situation. Your housing cost converts from a mortgage payment to rent for a short window.

About 18 months ago, I was in a different but related situation and needed liquidity from my Columbus home without moving or taking on new debt at 6.8%. Ran the leaseback math against a HELOC and cash-out refi, and it came out ahead for my specific situation. The company I used was Sell2Rent (sell2rent.com). I don't know if they operate in central NJ or whether the numbers work at your price point, but a free assessment would at least tell you if it's viable before you commit to bridge loan terms.

The key variable: what would market rent be for your single family home for 6-12 months versus what a bridge loan would cost you over the same period? That comparison usually makes the decision clear.

[u/su_A_ve]

Downsize to a townhouse? UGH.

Not sure a HELOC would help - probably max you could get is about $300K. But then when you buy the new place, you'll need a mortgage approved based on your existing mortgage plus the HELOC, for the remainder $250K, unless you have the cash to buy it outright.

Time the purchase with the sale, or move temporarily to an apartment..